& Why Banks rule
Why the EU must dare to debate
By Nick Jacobs http://blogs.euobserver.com/jacobs/2012/11/15/why-the-eu-must-
continuing expansion of the global economy is confusing,
but is it also making us poorer?
if, instead of saying that Europe must get back to growth,
European Commission chief Jose Manuel Barroso decided to
say the opposite?
all of its bluster, the current EU budget battle is being
waged over fairly narrow stakes: whether Europe will get
back to growth more quickly by spending a little more or
a little less at the EU level. The stakes are narrow,
firstly because what is spent at EU level is only a
fraction of public spending in the 27 member states, and
secondly because all of the bickering is focused on how
to get growth, andnot on whether it is
actually necessary or desirable.
alternatives to growth really exist? The debate remains
on the margins of the public political sphere, but in
Europe and elsewhere serious academic theories and
grassroots movements are building around the idea of a
steady state economy with zero growth, or
even sustainable degrowth.
degrowth movements believe that producing more year
on year will not make us truly better off, and cannot go
on infinitely due to ecological limits.
steady state economy advocate Herman Daly argues
that we have already hit a threshold
where growth no longer brings net gains even in purely
economic terms, i.e. the costs of all the damage done by
additional growth (e.g. paying for environmental clean-up
and health afflictions linked to pollution) already
outweighs the benefits.
one denies that growth used to make us richer. The
question is, does growth any longer make us richer,
or is it now making us poorer?
theorists also rubbish the idea that economic growth can
realistically be decoupled from growth in resource use
and carbon emissions. According to UK economist Tim
a world of nine billion people all aspiring to
western lifestyles, the carbon intensity of every
dollar of output must be at least 130 times lower in
2050 than it is today.
more, this growing body of thinkers and activists does
not believe that additional growth in advanced economies
is socially desirable. Data used by degrowth theorists
point to rising wellbeing up to modest per capita income
levels of around $20,000, after which it depends much
more on other factors such as love, family and
friendships. So the extra things that extra growth
produces, and our extra per capita income allows us to
buy, do not lead to extra wellbeing.
into the mainstream?
significant is this movement? Mainstream political
parties have been reluctant to debate, let alone to
defend, a concept that runs so deeply against the grain
of current political discourse. The Greens, in several
European countries, are a notable exception (see previous
blog on green parties).
closest that degrowth has come to the corridors of
political power was the publication in 2009 of a report
drawn up by Tim Jackson for the UK Sustainable
Development Commission, an advisory body to the
government that was subsequently abolished by David
Cameron. Jacksons Prosperity
Without Growth report drew plaudits but has
remained on the margins of the debate as politicians in
the UK and elsewhere have gone firmly into recession-mode,
asking only the old, familiar question: how can we get
back to growth?
grassroots movements have been growing in strength. Over
the last two months alone the 3rdInternational
Conference on Degrowth, Ecological Sustainability and
Social Equity has taken place in Venice, while the Global
Womens Forum in Deauville held debates centred on
degrowth. Meanwhile the local initiatives that underpin
the movement are flourishing. In Italy, where a strong Decrescita
Felice (happy degrowth)movement has
sprung up, the Cittaslow network has brought
together dozens of towns and communes in the interests of
slowing the pace of urban life and repurposing urban
space away from commercial uses a movement that
has now spread to more than 20 countries.
should this be the EUs battle?
why should EU policy-makers pay attention to these
alternative voices if they barely feature in the
political debate at national levels?
because they can. The EU executive is
used to raising the uncomfortable questions and being
blamed by national politicians who are themselves more
constrained by the short-termism of electoral cycles.
Bonkers Brussels wants to ban growth and
other such headlines would of course abound from the
British tabloids if the EU were even to open a reflection
on degrowth. But headlines like this are business as
usual, and unfortunately are the price that must be paid
for bringing a new and sensitive debate into the
the European Commission should embrace the degrowth
debate because disillusionment with growth-based
strategies is Europe-wide, and is growing. Across
Southern Europe determined protest movements are building
against the price of past growth (mountains of debt) and
the prescribed remedy for returning to growth (austerity).
whole bloc is facing hard questions about how to squeeze
more growth out of its factories, farms and financial
centres. The answers all point towards an unappetising
race to the bottom: Europe must work more, work longer,
and regulate and spend less for health, wellbeing and the
many, these are necessary compromises. After all, what
are the alternatives? Without more growth, and withan
expanding population, everyones piece of the pie
gets smaller meaning reduced employment and
however, is not the whole story. Jacksons
Prosperity Without Growth theory openly
acknowledges the need to shift to labour-intensive,
resource-light activities, where existing work is shared
around and people have more time for leisure,
volunteering, and tending to themselves and their
a result we would earn less, but we would not necessarily
be less wealthy even in strictly monetary terms.
Debating growth vs degrowth can help us to understand the
cycles we are in: we need lots of money so we work hard;
but we also need that money because we
for crèches, stress and fatigue-related medical
expenditure, commuting expenses, on-the-road snacking,
comfort purchases, insurance payments for our comfort
purchases, expensive getaways
it turns out that
many of our financial needs are contingent in
some way on working (too) hard. Of course if we
werent taxed so much we wouldnt need to earn
so much in the first place
and yet much of this tax
is levied to fund the public services whose need arises
from our individual over-working and over-consuming (e.g.
healthcare) and our collective over-working of the
environment (e.g. the clean-up of water courses from
agricultural and industrial run-off).
these cycles be broken? Can there be another way? Could
it be the European way? Surely this is too important a
debate not to have?
Nick Jacobs grew up in the UK and moved to
Brussels in 2008. He works on agri-food, trade and
development issues within the team of the UN Special
Rapporteur on the Right to Food, after having spent three
years as journalist for Agra Europe.The opinions
expressed in this blog are those of the author alone
by Valentina Pavarotti
bankers rule the world
By Ellen Brown Asia Times 14 Nov 2012
In the 2012 edition of Occupy Money released this month,
Professor Margrit Kennedy writes that a stunning 35% to
40% of everything we buy goes to interest. This interest
goes to bankers, financiers, and bondholders, who take a
35% to 40% cut of our gross domestic product.
That helps explain how wealth is systematically
transferred from Main Street to Wall Street. The rich get
progressively richer at the expense of the poor, not just
because of "Wall Street greed" but because of
the inexorable mathematics of our private banking system.
This hidden tribute to the banks will come as a surprise
to most people, who think that if they pay their credit
card bills on time and don't take out loans, they aren't
paying interest. This, says Kennedy, is not true.
Tradesmen, suppliers, wholesalers and retailers all along
the chain of production rely on credit to pay their bills.
They must pay for labor and materials before they have a
product to sell and before the end buyer pays for the
product 90 days later. Each supplier in the chain adds
interest to its production costs, which are passed on to
the ultimate consumer. Kennedy cites interest charges
ranging from 12% for garbage collection, to 38% for
drinking water to, 77% for rent in public housing in her
Her figures are drawn from the research of economist
Helmut Creutz, writing in German and interpreting
Bundesbank publications. They apply to the expenditures
of German households for everyday goods and services in
2006; but similar figures are seen in financial sector
profits in the United States, where they composed a whopping 40% of US
business profits in 2006. That was five times the 7%
made by the banking sector in 1980. Bank assets,
financial profits, interest, and debt have all been
Adapted from here .
Exponential growth in financial sector profits has
occurred at the expense of the non-financial sectors,
where incomes have at best grown linearly.
By 2010, 1% of the population owned 42% of
financial wealth, while 80% of the population owned
only 5% of financial wealth. Dr Kennedy observes that the
bottom 80% pay the hidden interest charges that the top
10% collect, making interest a strongly regressive tax
that the poor pay to the rich.
Exponential growth is unsustainable. In nature,
sustainable growth progresses in a logarithmic curve that
grows increasingly more slowly until it levels off (the
red line in the first chart above). Exponential growth
does the reverse: it begins slowly and increases over
time, until the curve shoots up vertically (the chart
below). Exponential growth is seen in parasites, cancers...
and compound interest. When the parasite runs out of its
food source, the growth curve suddenly collapses.
People generally assume that if they pay their bills on
time, they aren't paying compound interest; but again,
this isn't true. Compound interest is baked into the formula for most
mortgages, which compose 80% of US loans. And if credit
cards aren't paid within the one-month grace period,
interest charges are compounded daily.
Even if you pay within the grace period, you are paying 2% to 3%for the use of the card,
since merchants pass their merchant fees on to the
consumer. Debit cards, which are the equivalent of
writing checks, also involve fees. Visa-MasterCard and
the banks at both ends of these interchange transactions
charge an average fee of 44 cents per transaction -
though the cost to them is about four cents.
How to recapture the interest
The implications of all this are stunning. If we had a
financial system that returned the interest collected
from the public directly to the public, 35% could be
lopped off the price of everything we buy. That means we
could buy three items for the current price of two, and
that our paychecks could go 50% farther than they go
Direct reimbursement to the people is a hard system to
work out, but there is a way we could collectively
recover the interest paid to banks. We could do it by
turning the banks into public utilities and their profits
into public assets. Profits would return to the public,
either reducing taxes or increasing the availability of
public services and infrastructure.
By borrowing from their own publicly owned banks,
governments could eliminate their interest burden
altogether. This has been demonstrated elsewhere with
stellar results, including in Canada,Australia, and Argentina among other countries.
In 2011, the US federal government paid US$454 billion in
interest on the federal debt - nearly one-third the total
$1,100 billion paid in personal income taxes that year.
If the government had been borrowing directly from the
Federal Reserve - which has the power to create credit on
its books and now rebates its profits directly to the
government - personal income taxes could have
been cut by a third.
Borrowing from its own central bank interest-free might
even allow a government to eliminate its national debt
altogether. InMoney and Sustainability: The Missing
Link (at page 126), Bernard Lietaer and
Christian Asperger, et al, cite the example of France.
The Treasury borrowed interest-free from the nationalized
Banque de France from 1946 to 1973. The law then changed
to forbid this practice, requiring the Treasury to borrow
instead from the private sector. The authors include a
chart showing what would have happened if the French
government had continued to borrow interest-free versus
what did happen. Rather than dropping from 21% to 8.6% of
GDP, the debt shot up from 21% to 78% of GDP.
"No 'spendthrift government' can be blamed in this
case," write the authors. "Compound interest
explains it all!"
More than just a Federal solution
It is not just federal governments that could eliminate
their interest charges in this way. State and local
governments could do it too.
Consider California. At the end of 2010, it had general obligation and revenue bond debt
of $158 billion. Of this, $70 billion, or 44%, was
owed for interest. If the state had incurred that debt to
its own bank - which then returned the profits to the
state - California could be $70 billion richer today.
Instead of slashing services, selling off public assets,
and laying off employees, it could be adding services and
repairing its decaying infrastructure.
The only US state to own its own depository bank today is
North Dakota. North Dakota is also the only state to have escaped the 2008
banking crisis, sporting a sizable budget surplus
every year since then. It has the lowest unemployment
rate in the country, the lowest foreclosure rate, and the
lowest default rate on credit card debt.
Globally, 40% of banks are publicly owned, and they are
concentrated in countries that also escaped the 2008
banking crisis. These are the BRIC countries - Brazil,
Russia, India, and China - which are home to 40% of the
global population. The BRICs grew economically by 92% in
the last decade, while Western economies were floundering.
Cities and counties could also set up their own banks;
but in the US, this model has yet to be developed. In
North Dakota, meanwhile, the Bank of North Dakota
underwrites the bond issues of municipal governments,
saving them from the vagaries of the "bond
vigilantes" and speculators, as well as from the
high fees of Wall Street underwriters and the risk of
coming out on the wrong side of interest rate swaps
required by the underwriters as "insurance."
One of many cities crushed by this Wall Street "insurance"
scheme is Philadelphia, which has lost $500 million on
interest swaps alone. (How the swaps work and their link
to the LIBOR scandal was explained in an earlier article here.) This month, the Philadelphia
City Council held hearings on what to do about these lost
revenues. In an October 30 article titled "Can Public Banks End Wall Street Hegemony?",
Willie Osterweil discussed a solution presented at the
hearings in a fiery speech by Mike Krauss, a
director of the Public Banking Institute.
Krauss' solution was to do as Iceland did: just walk away.
He proposed "a strategic default until the bank
negotiates at better terms". Osterweil called it
"radical", since the city would lose its
favorable credit rating and might have trouble borrowing.
But Krauss had a solution to that problem: the city could
form its own bank and use it to generate credit for the
city from public revenues, just as Wall Street banks
generate credit from those revenues now.
A solution whose time has come
Public banking may be a radical solution, but it is also
an obvious one. This is not rocket science. By developing
a public banking system, governments can keep the
interest and reinvest it locally. According to Kennedy
and Creutz, that means public savings of 35% to 40%.
Costs can be reduced across the board; taxes can be cut
or services can be increased; and market stability can be
created for governments, borrowers and consumers. Banking
and credit can become public utilities, feeding the
economy rather than feeding off it.
Ellen Brown is an attorney and
president of the Public Banking Institute. In Web of Debt,
her latest of eleven books, she shows how a private
cartel has usurped the power to create money from the
people themselves, and how we the people can get it back.
Her websites are http://WebofDebt.com, http://EllenBrown.com,
(Copyright 2012 Asia Times Online (Holdings) Ltd.
Debt and GDP
1. United States
Debt: $14.590 trillion (9 August
Per capita debt: $46,929
Debt as in percentage of GDP: 94%
The United States has the world's
highest external debt at a whopping $14.590 trillion.
The US public debt burden has become
unsustainable and its debt and deficit ratio will remain
high for a long period unless the government cuts down
The economic crisis in US began with
the subprime mortgage crisis. Following this, the US
economy fell into a recession in 2008. Flawed
policies allowed lenders to offer loans to subprime
borrowers without considering the risk of future default.
External debt (or foreign debt) is
that part of the total debt in a country that is owed to
creditors outside the country. The debtors can be the
government, corporations or private households.
2. United Kingdom
Debt: $8.981 trillion
Per capita debt: $144,338
Debt as in percentage of GDP: 400
Britain's economy has also plunged
into deep crisis. The budget deficit has risen to more
than 156 billion pounds.
The manufacturing output fell by 0.4
per cent in June from the previous month as there is a
drastic fall in domestic demand. The country GDP is
expected to fall further3. Germany
Debt: $4.713 trillion
Per capita debt: $57,755
Debt as in percentage of GDP: 142
Germany which bounced back from the
2008 recession has largely remained immune to the crisis.
However, the US downgrade and
mounting debt on other Euro zone nations could hit its
coffers as well.
Germany already bears the burden of
the 120 billion euros of the euro bailout fund's 440
billion euros. Germany's budget deficit is 2.3 per cent
of gross domestic product.
Debt: $4.698 trillion
Per capita debt: $74,619
Debt as in percentage of GDP: 182
A crisis is imminent in France
as its budget deficit is 6 per cent of gross domestic
Click NEXT to read more
Image: A homeless man lies in front of the
Louvre Hotel in Paris. 6. Japan
Debt: $2.441 trillion
Per capita debt: $19,148
Debt as in percentage of GDP: 45
The devastating earthquake and
tsunami has pushed the Japanese economy into a grave
Japan's high rate of growth has also
been hit with massive bank loan defaults. 9.
Per capita debt: $36,841
Debt as in percentage of GDP: 108
Italy's economy has seen one of the
lowest growth rates in the world. A very high public debt
highlights the fact the country cannot repay back its
debt. The country lacks the resources to accelerate
growth. 10. Spain
Debt: $2.166 trillion
Per capita debt: $47,069
Debt as in percentage of GDP: 154
In Spain, long term loans, realty
sector crash and bankruptcy of major companies, rise in
unemployment at 13.9 per cent in February 2009 escalated
Debt: $853.30 billion
Per capita debt: $91,487
Debt as in percentage of GDP: 187
Sweden went through a bad spell
between 1990 and 1993. Its GDP went down by 5 per cent
and unemployment rose to record highs. The real estate
boom also crashed adding to its economic woes.
Per capita debt: $47,636
Debt as in percentage of GDP: 174
Greece is going through its worst
years. Uncontrolled spending and cheap lending has seen
its debt levels zoom to scary heights.
Also, the failure to implement
financial reforms has resulted in losses of $413.6
billion, much larger than the country's economy.
Greece and Ireland have the highest
poverty rate in the 15-member EU, while Sweden has the
lowest at 9 per cent. 20. Portugal
Per capita debt: $46,795
Debt as in percentage of GDP: 217
Portugal's economy has posted an
average annual growth of less than 1 percent over the
past 10 years.
The country faces a huge foreign
debt owning to reckless spending without generating any
returns. Portugal is set to introduce austerity measures
including tax hikes and pay cuts.
. 1. United States
Gold reserves: 8133.5 tonnes
The United States owns the world's largest gold
Gold constitutes 74.7 per cent of the nation's
foreign exchange reserves.
Gold reserves: 3,401.0 tonnes
Gold reserves2,814.0 tonnes
Gold reserves:557.7 tonnes
Indias current credit rating by S&P is BBB-
(BBB minus), which, according to S&P definitions is
considered lowest investment grade by market participants. 8811
India Debt Rdff10811
Although India's gross public debt to GDP ratio fell
from 75.8 per cent to 66.2 per cent between 2007 and 2011,
it still is among the highest in the region.
India's 66.2 per cent level compares with Malaysia's
55.1, Pakistan's 54.1, the Philippines' 47, Thailand's 43.7,
Indonesia's 25.4 and China's 16.5, according to an
analysis by Cornell economist Easwar Prasad in the Financial
Outstanding liabilities of the Central Government
2004-5: Rs. 19,33,544 crore (Rs. 19,335.44
2009-10: Rs. 33,57,772 crore (Rs. 33,577.72
a) Internal debt
2004-5: Rs. 12,75,971 crore (Rs. 12,759.71
2009-10: Rs. 23,56,940 crore (Rs. 23,569.4
) Market borrowings
2004-5: Rs. 7,58,995 crore (Rs. 7,589.95
2009-10: Rs. 7,66,897 crore (Rs. 7,668.97
2004-5: Rs. 5,16,976 crore (Rs. 5169.76
2009-10: Rs. 5,90,043 crore (Rs. 5,900.43
b) Other internal liabilities
2004-5: Rs. 6,57,573 crore (Rs. 6,575.73
2009-10: Rs. 10,00,832 crore (Rs. 10,008.32
External debt (outstanding)
2004-5: Rs 586,305 crore (Rs 5,863.05 billion)
2010-10 (Sept end): Rs 1,332,195 crore (Rs 13,321.95
The components of India's external debt and the
percentage they form of the total external debt are given
Multilateral: 15.8 per cent of total external debt
Bilateral: 8.3 per cent of total external debt
IMF: 2.1 per cent of total external debt
Export credit: 6.2 per cent of total external debt
Commerical borrowings: 27.8 per cent of total
NRI deposits: 16.9 per cent of total external debt
Rupee debt: 0.6 per cent of total external debt
Long-term debt: 77.7 per cent of total external debt
Short-term debt: 22.3 per cent of total
External debt figures represent borrowings by Central
Government from external sources and are based upon
historical rates of exchange.
Total outstanding liabilities
2004-5: Rs. 19,94,422 crore (Rs. 19,944.22
2009-10: Rs. 34,95,452 core (Rs. 34,954.52
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Amount due from Pakistan on account of share of pre-partition
2004-5: Rs. 300 crore (Rs. 3 billion)
2009-10: Rs. 300 crore (Rs. 3
Internal liabilities (as per cent of GDP)
2004-5: Rs. 59.7 crore (Rs. 597
2009-10: Rs. 54.5 crore (Rs. 545
a) Internal debt
2004-5: Rs. 39.4 crore (Rs. 394
2009-10: Rs. 38.2 crore (Rs. 382
Total outstanding liabilities
2004-5: Rs. 19,94,422 crore (Rs. 19,944.22
2009-10: Rs. 34,95,452 crore (Rs. 34,954.52
i) Market borrowings
2004-5: Rs. 23.4 crore (Rs. 234
2009-10: Rs. 28.7 crore (Rs. 287
2004-5: Rs. 16 crore (Rs. 160
2009-10: Rs. 9.6 crore (96 million)
(b) Other internal liabilities
2004-5: Rs. 20.3 crore (Rs. 203
2009-10: Rs. 16.2 crore (Rs. 162
External debt (outstanding) (as per cent of
2004-5: Rs. 1.9 crore (Rs. 19
2009-10: Rs. 2.2 crore (Rs. 22
External debt figures represent borrowings by Central
Government from external sources and are based upon
historical rates of exchange